890g.6363 T 84/117

The Secretary of State to the President of the Standard Oil Company of New Jersey (W. C. Teagle)

My Dear Mr. Teagle: I have received your letter of October 25th enclosing, for the Department’s information, a copy of the draft concession submitted to you by the Managing Director of the Turkish Petroleum Company, together with a copy of your letter to Mr. Nichols, relating to the negotiations of the American group of oil companies with regard to Mesopotamia. You state that you are submitting this information in order to enable the Department to express its views with relation thereto and that should the Department have any criticism or suggestion for change relative to the Open Door phase of the matter you would appreciate receiving an expression of the Department’s opinion.

During the course of the negotiations between the American Group and the European interests controlling the Turkish Petroleum Company, with regard to American participation in the development of the Mesopotamian oil fields, the Department has endeavored to support the American Group in every proper way. It has refrained, however, from giving any opinion either as to the commercial aspects [Page 258] of the problem or as to the technical business questions involved, believing that such matters lay without its proper scope and that decisions as to the desirability from a commercial point of view of accepting the terms proposed must be made by the American Group in accordance with their best business judgment.

The Department, however, is glad to take this opportunity of expressing, in reply to the request of the American Group, its opinion as to the extent to which the proposals to the American Group and the terms of the draft concession are in accord with the general principles which, in its view, are applicable to the matter in hand.

The Department notes with satisfaction that it is proposed that the development of the Mesopotamian oil field is to be undertaken under the terms of a new concession properly granted by the appropriate authorities and not under the terms of the alleged concession of 1914 to the Turkish Petroleum Company, the validity of which this Department has consistently contested. It also understands that the Turkish Petroleum Company, which is to seek the new concession, is to be reorganized so as to provide for substantially equal participation by British, Dutch, French and American interests (the American Group to include those companies which have expressed an interest in this project), and that this reorganized company will establish a system of subleases under which companies other than the Turkish Petroleum Company will be given the opportunity to develop all but a small portion of the territory subject to the proposed concession, so that while these other interests may not be in the first instance beneficiaries of the proposed concession they may, as lessees of the concessionnaire, enjoy substantially equal rights in the development of Mesopotamian oil resources. In this connection I desire to say further that the Department has observed the statement in the telegram of October 25th to Mr. Nichols (a copy of which was enclosed with your letter under acknowledgment) that a possible interpretation of certain articles of the proposed concession might require that sublessees be British companies. The Department notes with approval the stand taken in the above-mentioned telegram that American interests should have full opportunity to qualify as sublessees on an equal footing with other companies, and, in view of the basis on which it is understood that negotiations have proceeded and are to proceed, assumes that such opportunity will also be afforded to other sublessees regardless of nationality.

No comment however has apparently been made by the American Group with regard to the provision in Article 33 of the proposed concession for the formation of subsidiary companies under the English Companies Acts. While this would appear to be largely [Page 259] a question of business organization for the consideration of the group, the Department would regret any action tending to impair the international character of the enterprise which might result from the restrictive character of the phrase “under the English Companies Acts” in the Article in question.

The Department has noted the statement in the letter to Mr. Nichols that careful consideration should be given to the question of making specific reference in the draft concession to the plan of subleasing. While the Department appreciates that in a commercial convention of the character contemplated it might not be practicable to include the plan which the Companies have agreed upon in this respect, it is felt that it would be desirable for the American and foreign companies concerned to express, in the concession itself, their intention to accord appropriate recognition to the principle of equality of commercial opportunity.

While the proposed concession would appear to be in technical form an exclusive concession for the benefit of the Turkish Petroleum Company, nevertheless in view of the fact that this Company is to be reorganized so as to provide for the participation of the representative oil interests of four countries and the fact that only a small portion of the area of Mesopotamia is to be reserved for the Company itself, the balance to be made available for development by sublessees of the Company, regardless of nationality or affiliation, under fair and equitable conditions, it is the Department’s opinion that satisfactory recognition is under the circumstances accorded the principle that the territory in question is not to be exploited for the exclusive advantage of any one nation, and that American interests are not to be subject to injurious discrimination.

If, therefore, the American Group is representative of all the American oil companies desiring to participate (which the Department understands to be the case), if it is satisfied with the terms of its participation and if it desires to proceed with the matter on the basis you have outlined, this Department offers no objection to the adoption of a plan which if realized would be calculated to be of advantage to American economic interests, and which takes into account the principle for which this Government has stood in relation to the development of the natural resources of Mesopotamia.

On the basis of the principles outlined above, the Department will be prepared to give appropriate Diplomatic support to the American interests concerned and requests that you bring this letter to the attention of the participating American companies.

I am [etc.]

Charles E. Hughes